Icahn Pooh-Poohs Cigna–Express Scripts Deal, Citing Amazon's Specter

The activist investor argued the insurer's proposed $54 billion PBM purchase 'may well rival the worst acquisitions in corporate history.'

Carl Icahn left no question Tuesday as to where he stands on Cigna's proposed purchase of the pharmacy benefit manager Express Scripts.

The billionaire hedge fund manager, who owns a sliver of Cigna's outstanding stock, called on fellow shareholders to vote against the acquisition, arguing the PBM is too big and risky of a bet. Although presaged by a report in The Wall Street Journal, Icahn's move could rattle the blockbuster deal, as a similar tie-up between CVS Health and Aetna faces a major hurdle of its own.

"Cigna is dramatically overpaying for a highly challenged Express Scripts that is facing existential threats on several fronts," Icahn wrote in an open letter to shareholders:

• Regulatory risks: Citing his own experience with "the highly flawed rebate system," Icahn argued that now is a precarious time for PBMs, especially in light of recent comments by Health and Human Services Secretary Alex Azar, who has put PBMs in his reform crosshairs.
   
• Structural risks: Even without a radical policy change affecting PBMs, Express Scripts could face challenges when it ceases to be an independent company, Icahn said. Certain large managed care organizations, for example, may wish to avoid dealing with a company owned by a competitor, resulting in a loss of customers.
   
• Competitive risks: In addition to healthcare-sector incumbents, Cigna should consider what Amazon could soon do to PBMs, Icahn added, calling the retail giant "arguably the strongest competitor in the world." Amazon could challenge the very existence of PBMs like Express Scripts, he said.
   

Although some argue Express Scripts reduces prices by forcing pharmaceutical companies to compete with one another, Icahn said he believes the opposite is true: "there is a perverse logic that as the drug company charges more, the rebate to Express Scripts is higher as well."

Related: Roadblocks Imperil CVS-Aetna, Cigna–Express Scripts Deals

That model is poised for disruption, he added.

"When Amazon starts to compete as we believe they will, with their 100 million Prime users and scale distribution system, they will have no trouble breaking into the so called 'ecosystem,'" Icahn wrote. "With lower prices, the beneficiary will be American consumer, not the owners of Express Scripts."

Instead of proceeding with the acquisition, Icahn argued that Cigna should pursue a years-long partnership with Express Scripts or another existing PBM provider, while the shifting industry landscape settles into place.

Cigna Torches Icahn
 

In an eight-page response, Cigna expressed disagreement Tuesday with Icahn's positions, noting that he and his representatives had not contacted the insurer to offer their views since the deal was announced five months ago.

"Mr. Icahn's opposition is misguided and short-sighted," the insurer said. "Moreover, the assertions in Mr. Icahn’s letter are value destructive and demonstrate a clear lack of understanding of the dynamics of the healthcare industry."

Icahn—who has disclosed a 0.56% stake in Cigna and said has a short against Express Scripts, as Bloomberg reported—has "made a speculative financial bet against the transaction in the hopes that he can create a gain at the expense of Cigna and Express Scripts shareholders," Cigna said.

A special meeting of shareholders is scheduled for Friday, August 24.

Cigna Reiterates Support for Proposed Merger With Express Scripts by HLMedit on Scribd